Despite Recession, India Gets Record Inflow of Funds

Even as the world comes to grip with the ongoing recession, India is expected to witness record inward remittances for second year on a trot with early indications suggesting upwards of $40 billion in calendar year 2008.

This is way ahead of World Bank

's projection of $30 billion for the year. RBI data indicates that India has already received $39.14 billion during the first nine months of 2008.

Data for the fourth quarter ended December is not yet available. The fourth quarter coincides with the beginning of the festive period in the country and sees robust inflows normally. Data indicates that India received $10.86 billion during Q4 in 2007 compared to $8.43 billion in the same period in 2006.

In 2007, World Bank had placed India as the number one recipient of inward remittances globally with flows of $27 billion, followed by China with flows of $25.7 billion.

Unlike FII flows, inward remittances are considered to be extremely "sticky" as this money, sent on a monthly basis by overseas Indians, is used largely for household consumption. Bulk of these remittances come from blue-collar workers who remit not more than $500 per month.

Mr Dilip Rath, World Bank's lead economist who was associated with the agency's 2007 report, says India will remain the largest recipient of remittances among developing nations. He says rising crude prices during the early part of 2008 also fuelled demand for more migrant labour from South Asia.

"The trend is clearly indicating that we would cross the $40-billion mark easily. This is not surprising given that workers have to send money back home for their families to use. The Q4 remittances typically account for over 20% of the calendar year remittances," said Mr Anil Kapur, South Asia managing director for Western Union Services, the international money transfer agency.

Bankers support the view point, saying India is also gaining due to the underlying economic dynamics. "The rupee's depreciation against the dollar has only added to the surge in inward remittances," Vijaya Bank CMD Albert Tauro said. The rupee has depreciated by over 26% during between January and December 2008.

Besides the depreciating rupee, there has been policy level help with Indian banks being permitted to hike interest rates on FCNR(B) and NRE deposits. "The government is seeking more inflows to offset the outward movement of FII investments. This move is also aimed at reducing the dependence on "hot" money like FII flows, an official with a Kerala-based private bank said.

Mr Rath said flows into the developing economies in 2009 could fall anywhere between 1% and 6% while in case of India it could either be flat or witness a marginal slowdown. He added while additional flow of migrants to markets like the Gulf may decline in 2009, the existing stock of migrants is unlikely to fall. "This implies that the remittances from Gulf would remain flat or decline in nominal terms in 2009," he said.

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